Power Of DRI Officers To Issue Show-Cause Notices Under Customs Act And A 'Flux' In The Legal Position: Delhi HC Discusses

The Delhi High Court recently discussed a 'flux' in the legal position with respect to power of officers of Directorate of Revenue Intelligence (DRI) to issue show-cause notices and recover duties under the Customs Act, 1962. A division bench of Justices Yashwant Varma and Ravinder Dudeja was dealing with a batch of petitions seeking to quash the SCNs and pending adjudication proceedings arising out of the Customs Act, 1962 , the Finance Act, 1994 or the Central Goods and Services Tax, 2017. Some cases were initiated by the authorities as far back as 2006. One of the grounds taken by the Respondent-authorities to justify the delay in adjudication was that the disputes had to be kept in abeyance and were placed in 'call book', because of the Supreme Court's decisions in Commr. of Customs vs. Sayed Ali (2011). It was held therein that DRI officers do not have the jurisdiction to exercise functions under the Customs Act or to issue show-cause notices and recover duties. In this light, the Central Board of Indirect Taxes and Customs had issued instructions for keeping the matters, where proceedings were commenced by DRI officers, in abeyance (call book). At the outsert, the Court criticised the authorities for not reviewing the call book and further observed, “Even in cases where the proceedings may have been commenced by an officer of the DRI and if we were to assume that the respondents were compelled to stay their hands in light of the judgment in Sayed Ali, we fail to discern any factor which may have either prevented or restrained the respondents from initiating proceedings by placing pending matters in the hands of the Customs officers.” It proceeded to cite the Amendment and Validation Act, 2011- the underlying intent of which was to overcome the decision in Sayed Ali and validate all adjudicatory action that may have been initiated by officers of the DRI. Significant to note that the validity of the Amendment and Validation Act was questioned by the Delhi High Court itself in Mangali Impex Ltd. vs. Union of India (2016). However, the judgment was ultimately stayed by the Supreme Court on 01 August 2016. Moreover, the Parliament also introduced appropriate provisions in Section 28(11) of the Customs Act to enable the respondents to conclude the pending proceedings. The provision stipulated that all persons appointed as Officers of Customs under subsection (1) of Section 4 before the 6th day of July, 2011, shall be deemed to have and always had the power of assessment. The High Court noted that despite the legislature creating such “legal fiction”, the respondents failed to continue the proceedings. Thereafter, in March 2021, the Supreme Court rendered its decision in Canon India (P) Ltd. vs. Commr. of Customs (2021) [Canon I] which once again doubted the authorization made in favour of officers of the DRI. However, it did not strike down or adversely comment upon the scope and underlying intent of Section 28(11). Nevertheless, the Legislature passed Finance Act 2022 and by virtue of Section 97 once again validated initiation of proceedings which were placed in the call book. The controversy was finally put to rest in Commr. of Customs vs. Canon India (P) Ltd. (2024) [Canon II] where the Supreme Court held that DRI officers have the power to exercise powers under the Customs Act, 1962 to issue show-cause notices and recover duties. In its 177-page judgment, the High Court said that notwithstanding the legal flux, the respondent-authorities failed to act in accord with the legislative interventions which were intended to empower them to pursue further proceedings and take the adjudicatory process to its logical conclusion. Accordingly, the High Court allowed the writ petitions and quashed the SCNs and pending proceedings on ground of inordinate delay in adjudication. Case title: M/S VOS Technologies India Pvt. Ltd. v. The Principal Additional Director General & Anr. (and batch) Case no.: W.P.(C) 4831/2021 and connected matters Click Here To Read/Download The Order

Power Of DRI Officers To Issue Show-Cause Notices Under Customs Act And A 'Flux' In The Legal Position: Delhi HC Discusses

Kapil Dhyani

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